Chinese consumer sentiment hits 2014 high – China Spectator Chinese consumer sentiment has hit its highest level this year following positive signals in the housing and stock markets and record e-commerce sales figures, according to a private survey.

Inflating e-commerce traffic numbers common in China– Want China Times The recent case of Chinese online retailer Tmall, an Alibaba subsidiary, deploying fake sales figures, has led to an investigation by the China Youth Daily into the practice of inflating site traffic data in internet business.

Tencent’s eCommerce Volume Fizzles– Pymnts.com Tencent, the Chinese Internet giant that’s been trying to make a splash against its country’s E-commerce giant Alibaba, doesn’t seem to be keeping up with its plan as Tencent’s third-quarter earnings report shows the company posted a 81 percent decrease year over year in its E-commerce revenue.

International Payments Services Flock to China– Tech Node Several international payments services have recently said that China has become one of their biggest markets, as an increasing number of Chinese internet and mobile companies actively expand overseas.

Visa, MasterCard Confront China’s Stacked Deck – Caixin Despite a World Trade Organization directive putting China on notice to open its bank card market by August 2015, the central government has no immediate plans for letting Visa or any other company substantially challenge UnionPay, the state-controlled firm that has exclusive permission from the People’s Bank of China to clear all domestic interbank payments.

China Triumphs as Silicon Valley Primps – Linkedin The best Chinese [companies]….. are much better positioned for the next twenty-five years than their Western counterparts even though many in China still harbor an absurd inferiority complex for developments in the United States.

Chinese brands to storm luxury market – Warc When Added Value, the marketing consultancy, surveyed 600 “luxury targets” as part of its luxury attitudes study, it found, reported Campaign Asia-Pacific, that 84% agreed with the statement: “In the future, Chinese luxury brands will be just as good as Western luxury brands……” Chinese brands, on the other hand, were focused on authenticity and a long history, with strong heritage and great craftsmanship.

I don’t doubt that Chinese brands can master the quality, but I don’t see many examples of Chinese companies having the patience to build a brand over the long-term (decades) and brands like NE Tiger are an exception. So there will be no “storming”.

Is Alibaba’s Singles Day really worth it for China’s stressed-out retailers? – Quartz Singles Day can sometimes hurt a retailer more than it helps, especially as heavy discounts take their toll on profit margins. Companies like Elle, a handbag and luggage store, have come to depend on the shopping holiday for as much as 15% of their annual online sales. “So I’m very nervous,” said CEO Brian Lee, admitting that in the past he had offered discounts that were too steep.

Soho has lots of mixed used developments across the country with a huge property portfolio in Beijing, however, their retail platforms do not tend to attract international brands.

CONSUMERS

Xinhua Insight: China moves to expand, upgrade consumption – Xinhua The Chinese government announced measures to boost and upgrade domestic consumption in a bid to raise the quality and efficiency of its economy on Wednesday. Consumption is an important “engine” for economic growth and represents great potential for China’s development, said a statement on the central government’s website following an executive meeting of the State Council presided over by Premier Li Keqiang.

This is why the big brands are starting to watch Chinese policy makers to set their brand strategies for 2020.

Alibaba Goes Global, Singles Day Sales Top $5.9 Billion – Bloomberg Merchandise sold was 36.2 billion yuan as of 1:31 p.m. Beijing time, Alibaba said in a post on its Twitter Inc. account….Outside of mainland China, Alibaba’s sales promotion has been most popular in Hong Kong, followed by the U.S and Taiwan, according to data released by the company today. Shopping from mobile devices will be 45 percent to 50 percent this year, Steve Wang, Alibaba’s Tmall President, said at a press conference in Hangzhou today.

Apple-Alibaba deal talk may be mostly for show – Market Watch Are Apple and Alibaba’s Alipay really preparing to walk down the aisle? Or is this merely a stunt aimed at making UnionPay, Apple’s current payment partner in China, jealous?

ECONOMY & POLICY

Xi’s “new normal” theory – Xinhua The “new normal” theory elaborated by Chinese President Xi Jinping would be one of the hallmarks to be engraved in history by the ongoing meetings of the Asia-Pacific Economic Cooperation (APEC) in Beijing.

Top 20 is made up mostly from internet and real estate moguls, compare this to the Global Rich List that also have a lot of Internet billionaires, but also retail billionaires from LVMH, H&M and Zara etc.

Fashion Brand Spotting on Chinese Air Travelers Between Beijing and Shanghai

Yesterday, at the invitation of WPP Group and China Policy I made a day trip to Shanghai to present my views on the China luxury industry, past present and looking forward to 2020. Although tiring, and with regular delays, flying in China provides another great insight to consumers, brands and the changes taking place in the country.

As my presentation had touched on all of these things and my mind was on brands, I was expecting a bit of a rough brand experience on the China Eastern Airlines flight back to Beijing, where usually getting a pillow is even a struggle. Unexpectedly, I was on a brand new China Eastern Boeing 777, with new cabin layout, well trained and fully bilingual crew, descent meal and individual large touch screen entertainment system with wide selection of international TV and movies (in economy).

I was blown away with their upgraded service and judged it the best domestic flight experience in China I ever had and, I’m now willing to change my allegiance of airlines to China Eastern (from Air China). Its impossible for all China Eastern flights to simultaneously upgrade to this level of service, but in terms of the brand reinvigoration they have made one giant leap and now can roll the new service out across all routes.

This is something China is great at! They suck at something like fashion design, airline service or consumer brands for a very long time and then suddenly in one fell swoop they put all the technology and knowledge they have absorbed from the rest of the world into one major upgrade and bamm! – they are instantly globally competitive! Airlines is just one example, its happening with internet companies, mobile phones, automobiles, you name it, China consumer brands are coming.

In Beijing we pulled up next to a China Southern Airlines Airbus A380 arriving from Guangzhou. Does anyone know of other countries operating A380s (the largest passenger aircraft in the world) on domestic routes? I’d be interested to know where else has enough passengers to justify using these massive jets on short haul domestic routes and surmise that most other global carriers would save the A380s for long haul international routes.

As people traveling by air tend to fit the white collar or wealthy consumer demographic that premium brands love to target, time on the road gives the opportunity to take in the latest fashion and luxury advertising campaigns and new store openings the airports. Its obvious that despite China’s slowdown in luxury spending, travel retail and media spending on airport advertising are still going strong.

Besides dissecting the ins and outs of China’s airlines industry and media planning, the other great thing to do on the road is people watch. Again, because many travelers are white-collar business people or at least from the middle class, prolific adoption of international fashion and luxury brands (often head to toe) is easy to spot. The number of people seen using iphone 6s is also creeping up, and I’m sure a lot of these were purchased overseas in Hong Kong, or quite likely on the black market for a premium by those who just cant wait.

My presentation on the China market was broken into three parts: 2008 to 2012 where a lot of brand building in China was done through store expansion and big events (as Mao Suit covered back then), the anti-corruption and other market shocks that hit simultaneously around 2012, and finally what the China luxury market is going to look like in 2020.

As we approach 2015, brands are waking up and acknowledging that the market is in a “new normal for consumption” and never going back to the pre-2012 days of hyper growth. This demands brands take a new approach to their China strategy and while they busy themselves with consolidating current operations, its also time to re-assess and form new China strategies for the next five years to get us to 2020.

Discussing five-year strategies for the biggest global luxury market with some of the leading brand executives in the fashion world was enthralling. At the end of the day, winning the Chinese consumer over the long term will not be rocket science, in fact quite the opposite. China is going to follow a trajectory where it becomes a normal consumer market like other developed economies around the world (albeit much bigger).

By “normal” I mean that consumer fear from the anti-corruption drive will diminish and people with (legitimately acquired) money and desire to purchase fashion and luxury items will feel at ease to do so. By “normal” here I also mean that China will become a regulated and competitive market where brands wont be able to rest on their laurels and assume that their logo, brand power, Chinese consumers need for status or gifting inspired purchasing will be enough to drive customers into stores.

Instead, big brands will have to do what they do in other markets and build sustainable businesses over time by competing for consumers through brand promise, heritage, product design and creativity and most importantly a truly unique and luxurious customer experience (both in store and out).

Overall, this may have brand executives cowering as they fail to achieve double digit growth each year, but ultimately China will become a much healthier consumer market for all.

Speaking so much of brands, its not gone without my attention that Mao Suit is currently lacking a defined story or USP of what it is all about. As I dig deeper into the business of fashion and luxury I can see that the rules of brands apply just as much to fashion as they do airlines, and to international companies as they do Chinese ones.

So forgive the continued randomness of Mao Suit you’re experiencing as I continue to refine its narrative. Despite this, Danwei has been kind enough to include Mao Suit on its 2014 Model Workers China blog list.

As I skipped posting last week, this week’s newsletter is extra long (and maybe a touch out of date).

BEIJING: Online retail sales in China are growing more than four times as fast as overall retail according to official figures, and the traditional retail sector is going to have to develop greater agility if it is to keep pace with consumers.

This is very significant and the crux of why Mao Suit has been talking about policy lately. With the government needing continued consumption, jobs growth and lives Chinese companies going international, right now e-commerce is answering these issues.

A trademark spat between Chinese e-commerce giant Alibaba Group Holding Ltd and rival JD.com flared into public view after JD published an Alibaba letter urging publishers to be careful about advertising in promotions for China’s annual “Singles’ Day” spree, the world’s largest online shopping day.

Apple’s Tim Cook and Alibaba’s Jack Ma speaking separately at a technology conference yesterday, said they’re open to working together on projects that would turn phones into tools for buying and selling stuff.

A possible alliance in electronic payments between two of the tech world’s hottest companies—Alibaba Group Holding Ltd. and Apple Inc.—could open new doors for both in China, the world’s biggest e-commerce market.

Alibaba Group, with its record-breaking $25 billion initial public offering last month, may be the poster child for China’s growing influence on technology, but numerous other players from the People’s Republic, some with Beijing’s official backing, are aggressively moving into the U.S. market through expansion and acquisition. At the same time, a growing number of American companies can’t exit key parts of the business fast enough.

“Chinese online retailers are attracting a lot of attention,” said Ms. Chen, who was born in Beijing but moved to the U.S. when she was 14. “The important factor, more than just compensation, is growth and opportunities.”

JD hired Ms. Chen as one of the first participants in its new International Management Talent program, which recruits overseas M.B.A. graduates and provides them with a fast track to become executives at the Beijing-based company. JD launched the program this year, and the first-year recruits joined the company in August.

Now that it’s apparently the third largest smartphone maker in the world, China’s Xiaomi needs experienced heads to help it build its business outside of Asia. And that’s exactly what it’s getting. TechCrunch understands that the company has completed a significant international hire, poaching Donovan Sung, who was Spotify’s first product manager in the US, to run its international product development team in a role based out of Beijing.

Xaiomi’s Hugo Barra doesn’t like to be called a copycat. He used a conference appearance Tuesday to point the finger back at Apple, arguing that iOS and the iPhone have taken their fair share of “inspirations” from Android as well.

The accelerator boom (or, as some would say, bubble), is now sweeping through China in full force. From its humble beginnings as a neglected street of dilapidated bookshops, Haidian Book Street has been transformed into Beijing’s concentrated effort towards replicating that Silicon Valley “fan’er” (Chinese for “vibe”) domestically. In June 2014, Z-innoway (the Z stands for Zhongguancun, Beijing’s tech hub) opened its doors to a series of startup cafes, accelerators and other startup ecosystem players.

China’s desire that blue skies and traffic-free streets greet world leaders at a summit in Beijing next week — after air pollution in the capital reached hazardous levels at least 10 days so far this month — is prompting the city to ask residents to go away.

Beautiful weather the last few days and city seems quiet. Flights to Southern China resort city of Sanya have been booked solid all week as Beijing residents take advantage of unexpected holidays.

As the yellow hue of leaves and onset of chilly nights in Beijing signal the arrival of winter, one must decide whether attending the China Fashion Week Spring Summer 2015 collections that start Saturday provides hope to get through the frigid months, or that viewing such summer images will simply frustrate.

This year China Fashion Week is squeezed in between the 4th Plenum and the APEC Leaders’ Meetings, both of which for the proletariat tend to mean traffic chaos in Beijing as roads are closed and alternate day driving restrictions put in place. APEC senior leaders will be treated to a new fleet of Hong Qi (Red Flag) domestically produced limousines which are now favored over foreign luxury cars and part of the Government’s campaign to promote domestic brands.

With these two major economic and policy meetings taking center stage in Beijing and with think tanks around the country being commissioned to submit ideas for China’s 13thfive-year plan that will run from 2016 – 2020, international companies are realizing just how vital understanding Government policy is to managing their businesses in China.

It was in this context that I joined China Policy this week to give some presentations on how Government policy is likely to affect the business environment for the fashion and luxury sectors in the coming years.

A few key policy points coming out of the discussion this week are:

We are now in a “new normal” and shouldn’t expect economic growth rates to return to the previous levels anywhere above 8%.

The Government will continue to guide morality and exercise control on people’s behavior whether that be anti-corruption, censoring social media or having a chat to China’s artists and architects, as Xi JinPing did this week (no more crazy mall architecture it seems).

The Government will promote and encourage domestic consumption as the economy (continues) to move away from export driven growth (great for E-commerce).

This weeks reading below, half of them relate to Alibaba, so thinking I should just rename this the Alibaba blog ? I’m still tinkering with the new site design too and still some inconsistent formatting issues to contend with.

RETAIL

Costco, that warehouse supermarket with extra-large boxes of food, is about to enter the lucrative, yet increasingly crowded Chinese e-commerce market with its Chinese partner, Alibaba. … All of the shopping will be done online through the popular website, TMALL….Costco guarantees home delivery within three days.

E-COMMERCE

Alibaba Group’s Singles Day Shopping Festival, China’s largest 24-hour online shopping promotion, is going global this year as shoppers in some 200 countries and regions will be able to select from more than one million products being offered at steep discounts by participating Chinese and international e-tailers.

Alibaba is going to try and make this the biggest shopping day in the history of the world ever, and they may just succeed!

Tesla Motors has decided to sell its Model S through Alibaba’s e-commerce platform Tmall on November 11, joining the Singles’ Day shopping festival. It is the first time that Tesla’s cars will be sold other than through their own website in China.

Lamborghini also did a campaign selling through T-Mall and Mercedes Benz also sold 205 Smart cars through Taobao in three hours (although then apparently had problems managing the insurance and license plate issues that physical dealerships usually manage for customers. Tesla is recruiting staff heavily in China, would be interesting to be part of their early team here.

Recently listed e-commerce giant Alibaba Group Holdings Ltd. has found itself in a public relations ordeal because its popular shopping website Tmall.com was caught exaggerating the number of orders for a smartphone.

Logistics

Chinese e-commerce giant JD.com Inc said it had launched its warehouse and logistics initiative, ahead of China’s biggest online shopping event which produced sales of $1.6 billion (993.58 million pounds) for the firm last year.

Still a massive need for improvements in China’s logistics networks, this will bring big investment opportunities in warehousing and transport etc., but logistics heavily regulated by Government and high barriers to entry for foreign firms.

Alipay Wallet, the mobile app operated by Alibaba’s finance arm, announced today it has 190 million annual active users. The number of daily transactions through mobile has reached 45 million, with over 50% of the total from Alipay.

There is still conjecture about when and how Apple Pay will debut in China.

CONSUMERS

As we face a slowdown in the growth of global luxury sales in China, Hong Kong, and Europe, as well as a large change in terms of Chinese travellers’ profiles as they switch from group to independent travel, most brands are trying to reach a new type of more mature, more independent customer.

According to a report released Monday by the China Tourism Academy, 129 million tourists visited the country in 2013, down 2.5% from the previous year. Meanwhile, the degree of satisfaction reported by tourists dropped by 11% in 2013 from the year prior, to “basically satisfied,” the report said.

LIFE IN CHINA

To run or not to run? That was the question faced by entrants in Sunday’s Beijing marathon, as they awoke to find hazardous levels of pollution engulfing the city. The annual race, which has been dogged in recent years by difficulties – with the event twice postponed in 2012 due to scheduling clashes with the 18th Communist Party Congress, saw as many as 30,000 runners compete.

The project began, in 2009, when Sauvin, who has lived in China for more than a decade, discovered an accumulation of 35-mm. negatives in a recycling plant on the edge of Beijing. Buying the negatives in bulk by the kilogram, he has become a curator of what he calls vernacular Chinese photography. He estimates that he has sifted through more than half a million images, taken by ordinary citizens, between 1985 and the early aughts, that depict everyday life, leisure, and travel, both in China and abroad.

Some very cool photos, lots of Chinese hipsters before the days of international fashion brands. More photos here , here and vimeo here (may need a VPN).

Thanks to the team at Digital Creative, Mao Suit’s had some sprucing up and is back in action. As the China business landscape and intersections of the fashion, retail and technology landscape continues to evolve, I hope to use continue to use Mao Suit as a type of thought “lab” on these topics. I’ll endeavor to write my own content and conduct interviews when time permits and otherwise try to curate other relevant material into a weekly newsletter. I’ve said I’ll do that before and failed, so lets see if I can tame the instant gratification monkey for a while and get some posting rhythm going again. Until then, please consider the revamped Mao Suit to be back in ‘beta’ mode.

This is truly a BIG flagship store in line with Ralph’s other global properties in New York, Paris and London. I love the brand and have been looking forward to its re-establishment as a luxury brand in China. Back in 2011, I wrote this piece on Re-positioning Ralph Lauren in China. Its taken them quite a while, and glad to see them on track with this store.

Over half of all the world’s shopping center space under construction is situated in Chinese cities. It’s because China’s rising middle class is starved of entertainment options and sick of air pollution

“High-class school bags for children made in Japan,” read a sign in China. Another touted, “These bags will last until children graduate from school even if they are used every day.”

When I lived in Tokyo I felt sorry for all the children lugging these backpacks around laden with heavy books. Regardless of how ergonomic they ar,e tapping into Chinese consumers willingness to spend on children and education make them an easy sell product.

Lara Logan speaks with the founder who took $50,000 in seed money and created a company valued at $231 billion

I got into the Beijing’s Park Hyatt elevator with Jack Ma two years ago and literally gave him an elevator pitch about Mao Suit and my business card. I’ve been waiting to be acquired by Alibaba ever since.

Calvin Klein Launches Tmall Flagship Store in China on 19 Sep 2014. CK’ commodities can be classified in 3 categories: jeans & casual clothes, underwear products, and luggage & bags. All of its products are featured with street fashion style and it is specialized in new autumn and winter products with prices ranging RMB200-3,000.

Last week, Tencent boosted its investment to a 24.6% stake in 58.com, which is a web portal for a whole range of services in the local area, and often been described as China’s Craigslist. In the second quarter, it had monthly unique visits in excess of 200 million, and mobile represents 54% of total page views. In addition, subscription-paying merchants increased to 1.21 million in the second quarter from just 441,000 in the first quarter and 298,000 in the second quarter of 2013.

But another repercussion of the split is that eBay will give up much of its market value. The company is currently valued at roughly $70 billion, and of that amount, PayPal might be entitled to $47 billion. When the two go their separate ways, eBay will then be worth $23 billion

Many of us in China wondered why Instagram was given such a long run in China anyway. For those keen enough, a mobile installed VPN will allow access, but for most Chinese I speak to, Instagram just isn’t that high a priority when WeChat will do just fine.

Australia has announced a new category of visa named “premium investor visa” with effect from July1, 2015, offering immigrants permanent residency if they invest A$15 million or more in the country. The new reform will be a logical extension to Australia’s flagship “Significant Investor Programme,” already in force. Under SIP, those investing A$5 million and above will be entitled for a four-year visa.

New York City’s Waldorf Astoria hotel is set to become the biggest prize yet for buyers from China who have been pouring money into U.S real estate as they seek stable investments outside their country.

The recently opened Beijing Waldorf Astoria is very nice and situated next to the newly renovated In88 luxury mall. The artwork inside is also very cool, and I would say that being an art consultant to the hundreds of 5 star hotels opening in China would be a fun job.

Recently, the Guangxi Zhuang Autonomous Region Guilin city Yanshan district People’s Court heard a traffic accident compensation case involving an ordinary cargo truck and a luxury car, and ruled that driver Chen X bear all responsibility and pay the luxury car company compensation over a million yuan, a compensation amount rarely seen in the cases this court has heard. This case has been a wake-up call for all drivers, that they must be careful when driving.

Chinese firms are rising in the world economy. The 2013 Fortune Global 500 listed 89 Chinese firms, second only to the United States, and this figure is expected to increase over the next decade. Yet, the sheer size of Chinese firms’ wealth is not sufficient to secure the future of Corporate China. Using his unique

2012 was record year for luxury brands operating in China. As written about here, here and here! During 2011 and 2012 year luxury brands were making a land grab for retail space across China, primarily for mega flagship stores in the first tier cities like Beijing, Shanghai and Guangzhou, plus building bigger regional flagship stores in the 10 – 20 most promising second tier cities.

At the end of 2012 the new Chinese Government lead by Xi Jinping (who has lately been sporting a Mao Suit) came into power and promptly embarked on campaign to eradicate extravagant and corrupt practices amongst government cadres and other bureaucrats.

By late 2012 Maosuit.com was also reported that Chinese fashion consumers were beginning to find their voice and experiment with brands and looks that didn’t necessarily rely on famous labels and logos. This came at a time where there was a shift in fashion trends globally and the notion of ‘logo fatigue’ amongst fashion consumers began to spread.

In the last week two articles (here and here) in the Financial Times have highlighted the fact, that while Chinese consumer’s appetite for consumption at home is subdued, consumption by Chinese internationally continues to show unabated growth.

Combined, the anti-corruption campaign plus pivot in consumers tastes during 2013 and more spending offshore created a perfect storm type scenario that battered the Chinese Mainland sales of selected fashion and luxury retailers. Coming off the back of 2012’s record sales, there is no wonder that many pundits and equity analysts went into panic mode and the ‘China slowdown’ became one of the most talked about topics during last year. I was constantly amused by doomsday reports on China’s luxury and fashion market slowdown quoting ‘experts’ based in New York, Paris or Geneva who, may be apt at looking at spreadsheets yet have never set foot in China and fail to understand that China has to be a decade-long (not quarterly) play for retailers.

Long term, I have absolute confidence that Chinese will continue to develop a finely tuned taste for fashion (well beyond 1st and 2nd tier cities) and luxury brands whether foreign or domestic, still have plenty of room to expand and grow in China, albeit it a less frantic pace than before. As cases in point, take the current burst of store expansions underway in Beijing alone. In multiple locations across the city, new luxury stores are being built and unveiled as retailers themselves remain positive about the market.

One point of differentiation to the current wave of openings in Beijing versus those in 2012 is that they are happening in existing shopping malls that are being repositioned or renovated, and not in new shopping malls. However, in other cities like Chengdu, new store openings in new malls continues to be the main path of expansion.

In Beijing’s Shinkong Place (that holds the title of China’s top selling mall for luxury goods), the painstaking task of relocating existing tenants and introducing new brands to create a stronger trade mix of women’s fashion and accessories on 1F, men’s on 2Fand a mixture of other retailers on ascending floors is nearing completion. For some brands such as Dior this has enabled duplex stores with women’s on 1F and men’s directly above on 2F to be created, while for other brands their men’s and women’s stores are located separately within the premises.

The Intime Lotte luxury department store that floundered over recent years due to the lack of a distinctive luxury offering, has also been completely redone and now boasts an impressive line up of brands including Prada, Miu Miu, Cartier, Coach, MCM, Karl Lagerfeld, Tiffany and Valentino etc. with huge facades facing the bustling Wangfujin street and a stone’s throw from the new Waldorf Astoria and Beijing Peninsula hotels.

The third and most dramatic renovation being undertaken in Beijing is to the China World Trade Mall. Colloquially referred to as Guo Mao, the China World Trade Center Mall was the centre of Beijing’s CBD and a major business and trade landmark for the entire country. Over the next year or so China World Mall will undergo a major renovation that will allow more space for prestige retail including flagship stores with prized façade spaces facing Beijing’s busiest East – West traffic corridor – Chang’an Avenue. Hoarding for brands such as Louis Vuitton and Ermenegildo Zegna for their new China World Mall stores is already up and other major construction works are also underway. Some renderings of the finished renovation are here.

Not all mall operators are favoring to stick to luxury though. After five years of lackluster performance, Beijing’s City Mall adjacent to the Beijing Westin Hotel has recently closed to undergo repositioning that will not include the array of luxury brands such as Gucci and Burberry that were previously present.

Overall, I see the slowdown in luxury sales in China more as a maturation of the industry and Chinese consumers tastes and spending patterns. As the government continues to deliberately slow GDP growth over the coming years, retailers should accept current growth levels as the ‘new normal’, focus on consolidating operations and continue with strategic store expansions in a calculated (rather than haphazard) way.

While I see the validity in pouring over spreadsheets of sales and performance data to extrapolate a course for China’s fashion and luxury industry, all it takes is a bit of old fashioned people watching on the streets of China to understand that the growing sophistication and appetite for brands amongst Chinese young people just isn’t stopping and only has one direction to go, and that is up!

Disclosure: The author works for a real estate company that offers location services for luxury brands expanding in China.

Miu Miu and Dolce & Gabbana Stores Under Construction in Shin Kong Place

Dior Men's and Women's Duplex Store in Shin Kong Place Beijing

New Karl Lagerfeld Store Opened Recently in Lotte Intime Mall in Beijing

New Valentino Store Under Construction at Intime Lotte Department Store in Beijing

China Fashion Week has started again with fashion shows and industry events taking place in the Beijing Hotel and D Park creative zone. This Saturday 29th afternoon brings the opportunity for the public to join in a variety of fashion related events all centralized around the D Park (North East corner of the 798 Art District.)

First off, the second annual Beijing Vintage ride gets underway at 13:30 when cyclists will gather at D Park and then slowly make their way throughout the streets of Beijing to Park View Green shopping center. Last year’s ride was a great event with a surprising number of Beijing’s vintage bike and fashion lovers coming out of the woodwork. See Serk’s website for registration details and pictures form last year’s ride.

Next up, from 15:00 I will be hosting a seminar in English on the intersection of fashion and technology co-organised by Technode and Mobile Monday Beijing. I’ll give an overview of some of the exciting things happening in realm where fashion meets tech and retail before other speakers offer their own insights onto what’s happening in social networks, 3D printing and alike. This will be followed by a panel discussion, Q&A session and networking. More details including a map here on Technode.

This year as part of China Fashion Week, the China Fashion Association is also staging a showroom of 10 + 3 Chinese Designers in the new YOUZ exhibition space and also a fashion jewelry exhibition nearby, both are open to the public and close The Node event space where we will hold the fashion x tech event. So for anyone in Beijing interested in the creative or industry sides of fashion either D Park is where its at this Saturday 29th I hope to see/meet some of you there.

As a taste of what attendees to the fashion x tech seminar are install for below is an interview I conducted last year with P1 Social Network’s Director of Marketing Svante Jerling on how P1 is using big data to track and predict fashion trends in China. This interview was originally published on Technode back in December. Photos from P1’s Great Style Leap event below.

P1 Interview: Using Big Data to Track Chinese Fashion Trends

Last December, Chinese lifestyle focused social network P1 held its Great Style Leap exhibition in Beijing. The Style Leap exhibition tells the story of China’s rapidly evolving fashion scene driven by urban trendsetters. With a database of over 6 million street style photos taken across China’s biggest cities and through big data analysis, P1 is now able to track and predict fashion trends as the develop across China.

Please tell us a bit about how P1 got started?

We stared P1 in 2007 because we saw the business opportunity to create a social network targeted at wealthy urban Chinese. These people lead significantly different lifestyles from other sectors of society and to them ‘dinner’ means a high-end hotel, and ‘education’ means Harvard or high school abroad. We realized these people needed somewhere to hang out online and so they became our target users.

Initially, our customer and user acquisition model was to take photos of these wealthy urbanites out on the town, at clubs and night events and then share the photos online. By doing this we acquired the content (photos) and users simultaneously as people would sign up for P1 to see and share the photos of their night out etc. [This was before phone cameras became ubiquitous].

But then we realized that our target users were all hanging out in shopping malls too. So we started taking street style photos and began acquiring content and users in shopping environments too. To maintain exclusivity we kept P1 an invitation only social network.

What changes have you seen take place amongst your users over the last six years?

Since 2007 until now we have taken over 6 million photographs, mostly in first tier cities – Beijing, Guangzhou, Shanghai, Shenzhen and also a bit in Chengdu, Chongqing, Dalian and Qingdao. With over one million (verified) different people in the photos we realized we have this massive street style database that represents the development of Chinese fashion trends.

As a whole, the photos act as a historical record of the Chinese street style across the last six years, which given China’s speed of development, can be likened to decades of fashion evolution in other countries. Its fascinating to see that within such a short time frame we have seen the paradigm shift of thoughts and values amongst young people expressed through what they wear.

When we started taking photos in 2007-08, everyone was choosing what to wear with ‘status seeking’ in mind, where success was determined by how many luxury brands and distinguishable logos you had on display. Now, six years later, across the photos we can see a kaleidoscope of individual expression through fashion and there’s a diverse range of fashion tribes emanating across the country.

Fashion for the young urbanites no longer just about status and gone are the external standards of what society thinks defines success and what is ‘acceptable’ to wear (meaning you buy the most expensive thing you can afford). Now in 2013 we see Chinese adopting to fashion in terms of self-actualization.

How are you using big data able to track these trends through P1?

As most people we photograph are happy to give us their contact details, over six years P1 has built a massive data bank about which hipster, in which city, in which mall was wearing what colors. This, in addition to tracking the trends in the photos real-time as they are starting, gives us very powerful tool to measuring trends and ‘cool’.

These days everyone goes on about Key Opinion Leaders (KOLs). Well, with fashion we have found that often the KOLs probably aren’t the people actually initiating a trend. They may be an early adopter and help drive the trend, but they aren’t starting them – they are in fact just copying someone else – the initiators.

We created our own algorithms that at first just tracked colors of clothes in the photos and then we added another dimension to track objects such as bags, dogs and fixed gear bicycles, plus record the frequency of them occurring etc. This is where we start to make sense of the big data and apply our analytics.

The analysis will feed us information and give scenarios that predict the upcoming trends. So, for example if these 50 key individuals have been seen wearing item X or Y, then we can determine what chance the trend has to get big and take China by storm.

So through the photos and our database of users, we can trace trends back to their roots and identify the key initiators who are starting these movements. Then we can decipher, the conditions needed and chances of the trend really going big.

Does this give P1 and the power to influence trends and how is this affecting traditional fashion media?

P1 is in a position to act as a catalyst for trends, yet that’s not specifically our aim.

We don’t just focus on initiators who start the trends either. At P1 we focus on people we think are cool and then put them in the spotlight through our online and mobile platform, and it that way we have influence.

With this we also start to encroach into the domain of traditional printed media. Our algorithms can analyze magazines in exactly the same way as we analyze our street photos. When you put the two together, we can determine which fashion magazines have the most influence to drive trends according to by what items they feature in the magazines. This has huge potential to make print media more efficient and in-turn will influence advertisers spend etc.

How do you monetize your platform and this database of street style photos and analytics?

Our platform and affluent user base gives us multiple ways to work and collaborate with our brand partners and offer special services. P1’s advantage has always been a large (wealthy) user base and our brand clients like the fact that we pinpoint people who are naturally cool and we aren’t trying to stage what is cool or deliberately force trends on our users. Our database also gives us valuable information on users including: contact details, their color preferences, shopping habits and if they ride a fixed-gear bike etc. which is powerful for marketers.

Recently during Shanghai Fashion Week we collaborated with Starbucks on some product placement into our photos. Every 10 images or so featured someone holding a Starbucks Cup, or there was an (often blurry) Starbucks image in the background. In this way, the product placement was subtle and not so in your face like so much other advertising in China.

Brands acknowledge that capturing street style images can be more relevant than produced fashion campaigns because they are real and their target market consumers can relate to them better. However, this also makes it a very delicate balance with product placement because once it feels faked it backfires.

Therefore, we also need to be cautious and work with advertisers in a sustainable way and not let marketers abuse our platform to the point where it becomes played out. By ‘sustainable’ I mean not following the “I’m just going to plastering my image everywhere” philosophy that is pretty standard in China. Going back to our collaboration with Starbucks, the products were placed in a subtle way that didn’t bombard users.

What challenges do you have to taking the big data analysis to even more precise trend tracking and forecasting?

Altogether we use a combination of image analytics and algorithms to data mine the photos. Then a small percentage of the data must be entered manually by someone who can identify and tag the specific items and brands onto the photos.

The next level of analysis of the photos would be to create algorithms that can accurately identify brands and logos etc. Achieving this is mostly a technology issue, its not hard per se, just complex and so we need a lot of resources over time to solve this it.

To partially solve this issue, we have also introduced a tagging function into our App so users can tag items themselves and the content becomes more interactive and user generated.

Tell us about the P1 Great Leap Forward Style Exhibition that P1 staged last December.

We decided to do this exhibition because our data is finally sufficient enough to explain, qualify and prove all the trends we have seen and uncovered through our big data analysis. Therefore, the Exhibition was interesting for fashionistas and techies alike.

The exhibition celebrated the development of individuality, which is something new in China. Chinese culture dictates that kids have to follow their parent’s wishes on what hobbies they pursue, what they study and who they date. Parents influence many aspects of young Chinese people’s their lives, except perhaps what they wear. So clothes are their first taste of freedom and step towards choosing what they want for themselves.

We also wanted to show the world what Chinese fashion style. For the first time, China is moving from being the country where fashion is produced on mass to a country where global fashion styles and trends can originate. While a lot of the world thinks there aren’t many fashionable people here, the truth is that China could be an international style influencer in the next few years.

P1's Data Analytics Showing the Development of Neon and Hair Color Trends in Beijing and Shanghai

Guests Take Photos in front of the Fashion Trend Timeline at P1s Great Style Leap Exhibition

The consensus of the author and all but two brave souls in the audience was that China would NOT dominate the 21st century. Moreover, without addressing its internal problems, over the next 85 years China as the country we know it today may falter, and so much of the talk and following Q&A session focused on China’s internal politics and challenges of deepening domestic economic reform.

I posed this question to the speakers “over this century will Chinese private enterprises and companies etc. increase their global influence to become dominant and will China’s consumer products and (future) famous brands be able to positively impact the way people around the world see China?”

Jonathan’s response was that Chinese companies are already expanding globally, yet the problem is and will continue to be how Chinese manage their operations overseas, as implementing Chinese management practices into other countries cultures is unlikely to succeed. I completely agree with this and believe private Chinese companies will adapt and eventually implement the world’s best business practices, however for China’s SOE I’m not so positive.

In his answer to my question Kaiser Kuo highlighted that Japan has many world famous electronic brands, yet China to date has none and so this would indicate that Chinese brands wont become big brands. He also pointed out that Chinese don’t place a high value on intangible things associated with a product such as brand equity and simply focus on the functionality and price etc of goods.

On Kaiser’s first point I disagree, It’s still too early in the game to determine whether Chinese consumer products will make waves overseas. I believe over time they will and many companies such as Lenovo, Xiaomi, Tencent (Wechat) and Alibaba already are. On Kaiser’s second point I agree that in general terms Chinese companies don’t place value on intangibles, however Chinese consumers most certainly do and are willing to pay more for brand names that stand for status and quality (whether perceived on inherit). Hence the surge of international fashion and luxury brands into China over the last decade.

Last year while Mao Suit was on hiatus, I wrote an essay on this very topic of Chinese brands going overseas for the Journal of Australia-China Affairs. After yesterday’s discussion, now seems like a perfect time to publish that essay on Mao Suit. Although its quite long, I hope it raises some readers find it interesting. You can find the original here, starting on P91.

CAN CHINESE CONSUMER BRANDS HAVE A GLOBAL INFLUENCE?

Introduction

These days it’s impossible to ignore China’s growing sphere of influence on the world and its true that the proverbial butterfly flapping its wings in China can send tidal waves around the world.

Everyday, reports of China’s ascendancy to global dominance and China becoming the world’s number one market for mobile phones, Mercedes Benz or minerals etc. permeate the news. Similar stories describe China’s claims to the world’s largest airport, dam and high-speed railway network etc. – the list goes on.

With China’s newly found status also come regular pilgrimages to Beijing by the world’s political and business leaders – all eager to pay tribute, reinforce their interests and stay relevant. One only need witness the national flags on display at Tiananmen Square each day to know which Country’s leader is in town, or lurk in the lobby of Beijing’s Park Hyatt Hotel to encounter Fortune 500 company CEOs traipsing through.

Each nation has its own unique collection of animals, architecture, brands, cuisine, natural wonders, or even way of life that identifies it to the rest of the world. Whether Grand Canyons or Great Walls, pandas or pasta, sushi or surfing, over time each thing (plus many others) comes to represent a particular country and culture.

Besides military might and economic endowments, a nation’s influence on the world may also be considered through its products and brands that are respected internationally as being ‘best in class’. In this regard France is best known for fashion and wine, Japan for cars and electronics and the United States for a whole spectrum of products from iPhones to Coke-Cola and Nike sneakers.

Despite China now being a Super Power with enough muscle to shape the world’s economic and political climates, outside the country, China may still be better known for Communism, Kung Fu and Sweet and Sour Pork, rather than any leading brand or consumer product category.

According to American author, entrepreneur, marketer and internationally recognized branding expert Seth Godin: “A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer.”

Without a doubt, made in China products find their way into most households around the world, yet products (and services) purchased specifically because they are of Chinese origin, a Chinese brand or espouse Chinese values are few and far between.

This essay aims to highlight the ways Chinese consumer brands are venturing overseas, what is motivating them to do so and how they are faring. It also discusses international consumers attitudes towards Chinese products and the key issues that need to be address before Chinese brands may take on the world.

Brand building in the context of history

To put things in perspective, its important to first consider the context in which the worlds leading brands emerged. While many modern day brands were founded well over a hundred years ago, ‘brands’ and the marketing and ‘branding’ of them in the Developed World only emerged in the second half of the Twentieth Century and continues to evolve to this day.

During this time, the People’s Republic of China was a young nation recovering from war and experiencing the tumultuous era of Mao, The Great Leap Forward and The Cultural Revolution. This was a time when life had far greater priorities than choosing one’s favorite brand products. While the West was developing logos and tag lines for the hippest sneakers and sedans, in China, even one’s choice of clothes was limited to a blue, black or a khaki Mao Suit. Commercial brands were not at all suited to this period of Chinese history.

After opening to the world in 1978 and finally joining the WTO in 2001, China began to develop its own brands and also relaxed rules on foreign brands entering China. Fast forward to 2013 and Chinese consumers have well and truly embraced both their own and international consumer products, with branded goods being one of the most highly contested sectors of the retail economy.

Today, the domestic growth opportunities for Chinese brands are still one reason that prevents them from venturing overseas. With 1.3 billion consumers to please and GDP growth still at around 7% in 2013, many Chinese brands simply can’t be bothered chasing profits overseas until they have exhausted all domestic growth opportunities.

Chinese brand’s performance internationally

Its not that Chinese companies aren’t active overseas – they most certainly are, its just that to date, Chinese brands haven’t had much positive impact on consumers around the world.

In 2012 international marketing agency JWT conducted this survey of attitudes of people around the world to a variety of Chinese things including Chinese brands. When measured in terms of their impact value and affect on people, Chinese brands performed poorly and were generally perceived negatively.

The survey highlighted the fact that Chinese products are regarded as low quality, mass-produced and lack innovation and design qualities. Moreover, many considered Chinese brands to be counterfeited or unsafe and worse still, hundreds of respondents couldn’t identify any Chinese companies or brands at all.

According to another study, due to higher living standards over recent years, even within China trust in Chinese brands has been eroded and where possible Chinese consumers are opting for international brands across numerous product categories. The tainted Chinese baby milk powder disaster in 2008 that resulted in the deaths of several infants and caused Chinese demand for foreign milk powder to skyrocket is a perfect case in point.

Every year, international branding agency Milward Brown composes a report on the world’s most valuable brands. Taking into account over 10,000 brands and accumulating quantitative data from over two million consumers worldwide.

Somewhat surprisingly, in 2013, twelve Chinese brands performed well enough to be featured in the top 100 most valuable global brands. China Mobile was the top Chinese brand, coming in at tenth place, meanwhile technology companies Tencent and Baidu ranked 21st and 33rd respectively. Four Chinese banks, two insurance companies, two oil companies and Moutai – China’s most famous rice liquor were the other brands to make the cut.

What stands out about all the Chinese brands on the list is that they are hardly household names around the world. Compare this to other brands featured on the list such as Apple, Colgate, FedEx, Google, or Nissan, etc. that are easily recognizable worldwide.

In composing their list, Milward Brown considered each brand’s merits including: its unique selling proposition, capacity to set trends and saliency amongst consumers. While the study stands out for its thoroughness and worldwide research, it only indicates a measure of a brand’s global value rather than its influence and its recognizability.

Perhaps a more relevant study of the influence of Chinese brands around the world would be to survey and measure how many non-Chinese people would recommend and evangelize the benefits of Chinese brands.

The business model of airlines, banks, oil companies and alike demand they operate across international borders and in all these sectors Chinese companies are active globally. Yet, for other sectors, motivations for international activities can be varied and not necessarily targeted at citizens of the country the activities are based in.

The massive Chinese Diaspora, combined with ever increasing amounts of Mainland Chinese tourists travelling overseas have given Chinese brands cause to conduct their advertising and marketing campaigns outside of China, but with the aim of generating sales back home.

In many countries across the world this is plain to see. In late 2012, anyone exiting Sydney’s Kingsford Smith Airport was greeted with a series of massive billboard for Chinese Moutai rice liquor, Air China and Bank of China. This rapid-fire succession of China-centric advertisements were in more prominent positions and had significantly more impact than the next-in-line billboards for Rolex watches and Dior’s latest perfume.

While it’s easy to comprehend the Air China, and Bank of China billboards targeting Australians who travel and need international financial services, the Moutai advertisement was more perplexing. While Australia may be ‘pivoting’ towards Asia, its nonsensical to think that Australian consumers are going to disown their beloved beer and bourbons in favor of Chinese rice liquor. So why the advertisement?

What’s much easier to fathom is that the Moutai billboard is there to target incoming Chinese tourists who literally, straight out of the airport will see their Motherland’s beloved liquor and subconsciously (or not) think to themselves “Wow, Maotai is available here too, it must be a big global brand.” Then, upon return to China, sooner or later they will purchase some.

It’s a similar situation at airports and major destinations for Chinese tourists around the world. International travelers exiting from Buenos Aires Ministro Pistarini Airport in February this year were warmly welcomed to Argentina with an oversized Industrial and Commercial Bank of China advertisement!

Another more obvious situation where Chinese brands are expanding their activities overseas in wholehearted attempts to develop market share and generate profits in other markets. One Chinese brand leading this charge is electronics maker Lenovo.

According to the June Asia Pacific edition of Fortune Magazine, this year Lenovo is set to become the world’s number one PC maker and has its sights set on the global smartphone and tablet market currently dominated by Apple and Samsung. By taking on an international mindset, adopting Western management practices and even doing product placements in Hollywood movies such as Transformers, Lenovo may well be in the running to become China’s first truly international consumer product. [1]

In the technology sector Lenovo will also have competition from brands such as Hisence. In Australia, Hisence television sets are becoming popular and the brand is has become a naming sponsor of Melbourne’s Tennis Center where the Australian open is held every summer. How many Australians recognize Hisence as a Chinese brand is yet to be determined.

In 2009, China’s biggest sports brand Li Ning attempted to take on the US sneaker market by setting up an office in Nike’s hometown of Portland Oregon and sponsoring big name NBA players like Dwanye Wade. Despite spending big money on marketing and hype, Li Ning made the fundamental mistake of not getting their product design right and couldn’t convince American consumers to abandon their beloved Nikes and Adidas.

Interestingly enough, Li Ning was back at it again during the London Olympics and the companies ‘tick’ like logo appeared not only on Chinese sports team’s jerseys, but on other nationalities as well, including the Spanish men’s basketball team that reached the gold medal play off. The question remains if this sponsorship exercise was aimed at a global audience (who probably don’t recognize the logo anyway), or was just a way to gain face and install the message in China that Li Ning is a big brand with global reach.

The boldest international move made so far by a Chinese fashion company was in 2011 when down jacket brand Bosideng bought a piece of prime real estate near London’s Oxford St. and then opened a massive flagship store nestled amongst the world’s most iconic fashion brands. Whether or not the store is a commercial success remains to be seen, yet, with the Chinese Government rumored to be supporting the store, it can act as a benchmark and case study for research and feedback on how to build ‘brand China’ around the world.

Chinese companies’ acquisitions of international brands and overseas investments

One other vehicle for Chinese companies to expand overseas is through investments and acquisitions of existing foreign brands and companies. Although costly, by choosing this method, the Chinese company gains immediate access to foreign markets and absorbs existing expertise, personnel, IP and trademarks etc.

Deals of this nature that caused headlines include Geely’s purchase of Volvo in 2009, Li and Fung’s acquisition of British Tailoring Brand Gieves and Hawkes in 2012 and Wanda’s purchase of Sunseeker Yachts this June. Part of Lenovo’s success also came from the acquisition of IBM’s Think Pad laptop brand back in 2005.

In this same realm are Chinese entrepreneurs and company’s taking significant investment stakes into other industry sectors such as wineries in the Bordeaux region of France and cotton and wool farms such as Cubby Station in Queensland Australia. These are seen as ways of Chinese companies to secure their supply chains and vertically integrate their business operations.

However, accompanying the rise of Chinese investment around the world, many countries are concerned about Chinese ownership of land, food supplies and control over infrastructure and telecommunications etc. In the United States and Australia, Chinese telecom equipment company Huawei has been denied market access over fears that the company is connected to the Chinese military and a threat to national security.

Perhaps Huawei felt some soft power diplomacy was required to foster better relations with Australian politicians while they’re in Canberra and in an interesting move, Huawei now sponsors the Canberra Raiders Rugby League Football Team.

Roadblocks and the future of Chinese brand’s international expansion

Over the long term if China is to be successful in conquering overseas markets with its consumer brands there are fundamental structural issues it must address.

The JWT report into Chinese brands identified Chinese management styles as a major hindrance to operating overseas. Cultural norms of business in China such as hierarchical decision making and establishing friendships with local Government to facilitate things don’t apply in other countries. This seems to leave Chinese companies floundering in unknown waters over getting things down and operating in foreign markets.

Another crucial element that international companies and retailers build their brands around is the product’s cool-factor, trendiness and sex appeal. This is particularly true of fashion, cars, electronics, alcohol and multiple other categories, where the final determinant for purchase may well be how that brand is perceived by your peers.

Considering that setting design trends requires high levels of creativity and innovative thinking, its no wonder that China is yet to become a leader in any of these ‘cool’ product categories. You just have to take a look at China’s education system and traditional career values to understand why.

China’s rote learning education system does not encourage creativity and usually sets out to destroy and punish it. It also doesn’t help that Chinese parents prefer their Children to pursue ‘serious’ professions such as becoming bankers, lawyers and doctors, rather then creative disciplines such as fashion design.

Now China’s economy is maturing and it next phase (and challenge) is to move up the value chain away from cheap manufacturing to value added products and services. This will require a shift away from ‘made in China’ to ‘designed in China’ type thinking and wont come easily.

‘Copied in China’ is also a major issue with the proliferation of counterfeit products and lack of IP protection severely tarnishing China’s design and product development reputation and discouraging new innovations and design efforts.

But it’s not all bad news. Chinese certainly are able to be innovative and throughout history, things such as paper, printing, gunpowder and even the compass were all invented in China. In recent years China’s tech sector has been hailed for innovative web platforms such as the social media site Weibo, applications like We Chat and the next Steve Jobs may even come from China.

Chinese Brand Shangxia's Flagship Boutique in Paris

Conclusion

China is now a global Super Power and has an undeniable influence over world economics and politics. Yet, when it comes to Chinese brand’s international reach and influence over global consumers, China is left looking flat.

Chinese companies are operating overseas, but they have not yet managed to impress many consumers around the world who tend to rate Chinese products as low in quality and design. Still, Chinese brands are extending their influence across the world through advertising, entering new markets and by acquiring other existing international companies and brands.

To some degree China’s slow development of top brands is explained by her history and the current stage of economic development she is in. However, China also has a set of cultural circumstances such as education, management style and protection of IP that are also holding it back from developing world class brands.

Throughout the ages China has been responsible for some of the most important inventions the world has ever seen and so there is hope yet that China will rise to the occasion and create some amazing brands that excite consumers enough to recommend them to their friends. China, the world is waiting!

In late 2013 prior to releasing the report, KPMG conducted a series of conferences in Beijing, Shanghai and Hong Kong on the topic of China’s connected consumers where they first released their results and held panel discussions on the topics of luxury retail, digital, SNSs, O2O and onmi-chanel etc. As a panelist in both Beijing and Shanghai conferences, I had the opportunity to spend time and conduct an interview with Glamour Sales CEO Thibault Villet that was first featured on the Technode Blog. Now with the KPMG report finally released it’s a perfect time to re-post the interview for the first time on Mao Suit.

A seasoned veteran of luxury brand retail in Asia, Thibault Villet held senior positions at both L’Oreal and Coach before launching Glamour Sales in China in 2009. With Glamour Sales now a proven and growing business in China’s super-competitive e-commerce space, Thibault spoke to Mao Suit about the business and operating at the intersection of fashion, luxury and technology.

Please tell us a bit about the Glamour Sales business model?

Glamour Sales is a flash sales site focusing on luxury products. We follow the European (flash sales) model of selling on consignment rather than the US model where the website operator buys all merchandise up-front. To source merchandise, we only work directly with luxury brands or their official distributors and we don’t buy and re-sell parallel imported goods for two reasons: firstly, because the margins are too low, and secondly, to ensure that through selling authentic products our business had the chance to scale.

Now in China, after four years we work with 780 brands of which 95% internationally sourced brands. In terms of our China sales breakdown, we do 70% of sales with fashion, 20%with beauty and 10% with home décor/lifestyle products. In terms of fashion, we are very pretty balanced between footwear, apparel and bags and accessories and others items meaning jewelry, watches etc.

How do you select the merchandise and what percentage of Glamour Sales merchandise is current versus out-of-season stock?

For all of the first-tier luxury brands, the merchandise is one to two years old, while for accessible luxury brands; we are dealing with products a few months past their season. So for brands like Dolce & Gabbana we are now selling the winter 2012 collection and for a kids brand like Jacadi we are selling the Spring/Summer 2013 collections that only just passed.

We have a team of 20 people in our merchandising department and they are constantly in discussion with brands and the brands propose inventories and then the teams selects what we think is most interesting for our members whether it be the style, price, or blend of both. At the end of the day what we care about is selecting the right merchandise for our members, and we also incentivize the merchandise team our not only on sales but also on the sell-through.

Many e-commerce sites in China sell a wide selection of merchandise across different product categories from luxury to home goods etc. In other countries the luxury brands would never tolerate this? Why is China different?

We found that customers are more comfortable testing a website with entry level products and once they trust the platform, service and products then will trade-up. This is one reason why we still offer 18% of our product assortment through cosmetics [because they are cheaper and hence a less risky to try the service].

Of course as the market [in China]evolves and becomes more mature we ourselves are also trading-up. Some brands we accepted onto the site two or three years ago we aren’t inviting them to participate anymore because they no longer mach our image and also because we now have other preferable brands

Also to be honest the supply of luxury goods is a bit erratic. Some seasons [the designs]work very well and the brands have no left over stock that we can sell. I don’t think its wise to build a long term scalable and sizeable business only with first-tier luxury brands, so we also work with fashion brands and accessible luxury that include Glamour Sales us as part of their distribution strategy and some are even manufacturing products just for us.

Will Glamour Sales always focus on luxury in the future? I’m not sure – I don’t think so! We might try a site that has different products environments like a real shopping mall with a basement level, first and second floor etc. This in December, we are launching the virtual tree of our website where we will separate some products in terms of presentation and so the accessible and first-tier luxury designer brands will be featured separately as has been requested by both the brands and customers.

Are Glamour Sales customers coming to you specifically for flash sales?

People like the concept of flash sales that start everyday at 9am. They also like the fact that it’s a bit of a race and competitive because some products are limited. We have up to seven new brands going on sale everyday and each brand has about 100 different items, so altogether around 700 new items go on sale every day, and the sales last for seven days. About 50% of sales happen in the first day, 80% in first three days.

At the end of the day why do people come back? It’s because they enjoy the overall experience and the customer service. So from the brands we choose, the products we choose, the overall display, sizing, photography, product description, all the way up to the experience with payments, then deliveries, returns and after sales service, I think all of this is what we call the customer’s experience and we focus on that

What effect is the rise of mobile having on your business?

Mobile is huge for us! In four years we went from 2% to 22% of sales come via smart phones and if I include tablets, then its about half of our business today. In comparison, in Japan, smart phone sales are already 40%. So based on this trend, I’m very confident, that by end of next year we will realize half of our sales coming from mobile.

We are challenging ourselves and I’m pushing all the teams from IT to creative to refocus the whole approach to concentrate on the mobile first. Whereas before we developed things first for the desktop website and then adapted the apps etc. for mobile. Now the transformation of the company is to think mobile fist, and then once you have the mobile elements right, to adapt them into the desktop. So now, everything from the description we write about the product and the images we shoot to the interfaces we develop etc. is now mobile centric.

Glamour Sales receive a large investment from US based retailer Neiman Marcus. Can you tell us more about that

Neiman Marcus invested in Glamour Sales for two purposes. Firstly, because they believed in flash sales in China, and half of investment was for that. Secondly, to launch their own full-price (e-commerce) business in China. Neiman Marcus then decided that their full-price move into China was probably a bit too early for the market’s needs and they decided to change the business model. Neiman Marcus’ own full-price e-commerce service has now relocated and so the to the US and there will be a Chinese website operating from Dallas to supply the Chinese customers.

Glamour Sales operates at the intersection of retail, fashion and technology, how do you balance the different needs of each industry and also find staff who can work across these areas?

I would say we began as a ‘retailer’ and the market forced us to become much more open minded and we are now spending much more time developing the (technology) ‘product’ so far as the web platform is concerned.

With staff, we first focused on people with a retail or fashion background who had skills like merchandising and customer service. Then we added an extra skill dimension which you could call ‘data sensitivity’, so this would include people with marketing, user experience, merchandising and obviously IT and finance people because they are all very data focused.

Now, we are focusing more and more on CRM and the integration and convergence with social networks. The challenge today is tracking a customer who uses Glamour Sales via their phone in the morning, an ipad in the afternoon and desktop computer in the evening. Moreover, their use of social networks is changing all the time. Last year Weibo was clearly the dominant SNS platform in China and now this year its Wechat. A few years ago Google was still in China, now its gone! So tracking customer engagement, comments and buying etc. across multiple devices and platforms, to interact with her according to what she wants, through the channel she wants, when she wants while presenting a consistent Glamour Sales experience is critical.

This requires a very strong CTO who is constantly scouting and searching for what is happening [in tech], but its not only him. We developed a department called the BSM team which is specifically to interface between the marketing and IT teams [who may not always ‘get’ each other]and really their job is to scout and follow all the IT trends from mobile apps, payments, social commerce, mobile advertising and to them guide and push the direction that we should go towards.

Many foreign retailers wanting to enter China, think e-commerce can provide a quick-fix to the challenges of setting up a physical store network (which can take a few years). How do you see this?

I believe China (e-commerce) is the most competitive market in the world because you’re not only competing with other B2C platforms be they Chinese or foreign, but your also competing with foreign websites shipping to China and with 70% of the market still being C2C platforms [like Taobao], with individuals who buy (fashion products) overseas and resell online. So we are really in a super-competitive market.

Based on my experience, operating and being successful in China requires an understanding of the Chinese market. This market and ecosystem is different and it requires time to understand, adapt, and localize everything from advertising to consumer tastes and behaviors. The Chinese internet ecosystem is already in version 3.0 or 4.0, so you cant just come in with your existing (web or e-commerce) platform from the US or Europe, you really have to adapt your platform and give the best you have to China.

I would also say that China requires a long-term commitment and there is no pay back in one or two years. This means you have to have plenty of money to fuel growth and for Glamour Sales we took four years to break even. With the China opportunity comes a big (potential) ROI but it requires time and payback not immediate.

As a foreign entrepreneur working in a super-competitive e-commerce space in China and raising investments and overseeing operations, how have you found the journey?

Its very exiting and challenging, sometimes although you think you have a better project and opportunities, not being Chinese can sometimes be a handy-cap, but at the end of the day we built a team with 150 people and 148 of them are Chinese.

What I like with this business is that although it goes super fast, it always goes in stages. Sometime we wake up and think “merchandise” so we put a lot of effort into the merchandise, then “wow, I have so much merchandise, but I need more clients”, so you focus energy on building traffic and customer, then “wow, I have merchandise and customers but to many orders, so I need to fix my operations.”

The best reward we can have is the recognition from our customer and over 70% of customers are repeat buyers (I never got more than 50% in my previous jobs) and the second thing we get recognition from our brand partners, 90% of them are willing to come back and work with us.

Overall, the Chinese business ecosystem and environment is pretty positive because e-commerce is a booming industry. The local Shanghai Municipal Government is supportive and believes in e-commerce companies operating in the district.

We want employees to be happy, and develop themselves and behave like entrepreneurs and we are lucky enough in this industry to offer entrepreneurial careers in an environment that is changing so much that people anyway have to learn and in an environment which we try to keep fun and playful.

What a difference a bit of wind can make! Last week Beijing and a chunk of northeast China suffered through another bout of extreme pollution that made worldwide news headlines. Then almost after 10 days of still air that had allowed the pollution to build up, on Thursday afternoon a trickle of rain began followed by the forecast wind from Siberia and we awoke Friday to a glorious day. Unfortunately it didn’t last long and today is horrible again.

Beijing’s weather and environment are harsh to say the least and the hot and humid summers, freezing winters and extremely dry climate take a toll on the body. To stay sane, one must bath in moisturizing cream daily and as for preventing complete cuticle annihilation in winter I’m yet to discover the secret sauce. Its no wonder so many international companies decide to set up shop in Shanghai instead of Beijing.

Beijing actually had a relatively mild winter with mostly clear skies since November and only one snow dump. During Chinese New Year the Government encouraged citizens to show restraint in the amount of fireworks they let off in order to protect the air that is becoming ever more valuable and a topic of concern for everyday life. These measures seemed to succeed and throughout New Year Skies stayed mostly clear until the week of the 17th.

One day you wake up and the sky is a bit hazy, which is not abnormal. A few days pass and the haze lingers and emissions from factories and cars cling to the haze and absence of any wind prevents the air from being refreshed. By around the fifth day things are getting pretty serious. Buildings become indistinguishable from a few hundred meters away, the sun is either invisible or just a dimly lit disk in the sky, and one’s mood sinks. You don’t want to go outside, and if you must, then its best to wear an air mask that you worry is probably not helping much anyway.

Inside the house, air filters stay on 24/7 using electricity that is generated by burning coal and its just becomes one big vicious cycle. All anyone talks posts and Instagrams (or wechats in China) about is the pollution and everyone goes OCD over checking the Air Quality Index of which there are two. One is the Chinese Government’s measurement and the other (always higher) measurement comes from the US Embassy’s which has ruffled some feathers.

When I first came to China early this century it was also polluted, perhaps even more so, but back then no one had mobile applications to measure pollutants and most people were preoccupied with other more pressing issues facing society and the economy such as poverty. As many of these issues have now been solved or vastly improved the people in the more developed cities now have the ‘luxury’ to turn their attention to other lifestyle issues. The Mr. Wang and Ms Lis now have their own apartment, with all the mod cons, they have a car, some international branded goods and if they are lucky get to travel overseas every now and again. Now their basic needs have all been met its time to turn their attention to lifestyle issues including the quality of the air they breath.

Since coming into power in 2012, China’s Government has made the environment and particularly pollution a matter of urgency, creating their own pollution index and mobile applications to stay abreast of the daily changes. Last week when the pollution began to get out of hand the government issued warning to stay in doors, wear masks and for elderly and infants to take extra precautions. Many schools forbid children from playing outside while the better equipped schools like International School Beijing have installed hospital grade air filtration systems and spent millions of dollars to build fresh air domes where children can play.

When the situation gets this bad it has a significant impact on peoples lives and the way international companies (including fashion and luxury brands operate in China.) Over the last two years many expats have left Beijing quoting pollution and concern for their children’s health as reason for leaving. Despite this in late 2013 HSBC ranked China as the most attractive global destination for expats. However, with the pollution levels breaking new records, hardship allowances, office air filtration systems and health insurance clauses are all hot topics in expat circles and its going to get more expensive for companies to attract top international talent for China assignments.

Venturing outside last week the amount of citizens wearing air masks had risen dramatically from previous occasions and every supermarket and convenience store etc. were well stoked with air masked creating another market for niche goods. Malls and other retail areas were noticeably quieter as people stayed at home. This Guardian article reports that visitors to the Forbidden City fell to a quarter of their normal levels due to the pollution. If a similar drop in visitors were happening at commercial outlets then retailers surely would have felt the effects to their bottom line last week.

Not only did the pollution dissuade one from going shopping but it also affected the whole shopping experience. While entering one international electronics retailer’s stores I noticed they had the door open allowing the polluted air into the store. (It seemed to be the store’s policy to keep the doors open in order to welcome customers.) Meanwhile the staff just inside the door were all wearing confronting white air masks which presented quite a contrast to their matching shirts. When the time did come to speak to a service staff I felt a distinct lack of personal engagement and no feeling of friendliness from the girl serving me because she was wearing a mask. Its not that she was rude or mean, I just couldn’t see her smile, couldn’t detect other facial expressions and therefore couldn’t build any sense of rapport with her.

It certainly wasn’t just this retailer that would have had this problem. For premium brands where service is a key value proposition then the inability to build rapport and sell to a customer is a big problem. What can brands do? Order staff not to wear masks? Not likely when the Government has issued a warning and is encouraging people to wear them.

Besides air mark and air filter companies that are seeing a surge in business from pollution, the other sector to benefit is e-commerce. Already e-commerce is stealing market share away from the department stores, shopping malls and retailers, and add to this the fact that pollution levels are beyond the measurable index and people are loath to venture outside, then buying online becomes an even more attractive proposition.

Last week my good friends at KPMG China released this report titled China’s Connected Consumers in which they surveyed over 10,000 luxury consumers across the country. A few interesting finding of the report include:

– 9% of respondents were driven to purchase online because of the comfortable shopping at home (this is where pollution comes in)

– 55 % of Chinese internet users have made a mobile payment VS only 19% in the US

– There is a shift to online payments that is happening fast and catching many unaware (I’m seeing and hearing this from multiple sources, not just KPMG, and predict mobile payments in China to be a major disruption to retail in China this year).

Despite all of this airpocalypse doom and gloom some people are staying positive and happy by dancing in the streets.